Regions Need a Clear and Easy-to-Understand Explanation of Benefits of Commuter Train Services

8 december 2017
| Kommersant

The adoption of new regulations providing regional authorities with an explanation of the pattern of expenses incurred by companies operating commuter train services should answer a lot of questions that regional governments have about how to calculate the compensations supposed to be paid to these companies, however, these regulations do not guarantee that these compensations will be paid. Svetlana Ganeeva, Deputy Head of the Analytical Center, shared some of her ideas with the Kommersant newspaper about how the regulators should use the new documents in practice.

Svetlana GaneevaDeputy Head

The drafts of new methodologies for calculating the expenditures of commuter
train operators definitely offer some very realistic algorithms for resolving
numerous issues that the sector is facing. They offer some very good answers to
questions that the previous methodologies never addressed. However, these new
documents do not offer any formal guarantees that commuter train operators will
be able to get compensation from the regional governments for the expenses they
calculate using these new methodologies. There are two issues at play here:
first, governors do not want to pay and second, there are doubts about whether
the expenses that commuter train operators want compensation for are
justified.

The doubts have to do with whether the regional governments end up paying
specifically for the service that they order and don't end up paying any extra
expenses: the new methodologies should put these doubts to rest for the most
part, seeing how they are quite easy to understand, very logical and how a wide
array of expert discussions have been held about them. Transparency during the
development of new methodologies, both when explaining new ideas and when
considering new proposals, always helps dispel any doubts about the
transparency of the regulatory mechanisms that eventually get picked further
down the road.

However, if the root causes of mistrust run deeper and commuter trains are
regarded by the regional governments and Russian Railways as an expensive
social burden, the methodologies for calculating the costs alone are hardly
going to make any difference. Regional governments need to be given a clear and
easy-to-understand explanation about the benefits that commuter trains deliver
not just for the passengers but for the regional economy as a whole.

Our Analytical Center has developed some approaches that allow us to
quantify the benefits from commuter train services and our estimates suggest
that subsidies paid to railway companies in the long run boost regional tax
revenue as they ultimately increase the economic activity of the population in
the region. They show that commuter trains do give you a return on investment
and thus represent a normal investment project: the regional government invests
in commuter trains and recoups the investments as additional tax revenue seeing
how people use commuter trains primarily to commute to work. Since salaries and
wages in Moscow are higher, the taxes on them are higher as well. The residents
of the Odintsovo district alone, who work in Moscow, generate RUB 4.2 billion
per year in extra tax revenue. And that's not the only positive effect of
commuter trains.

If these calculations were to be used more, the attitude of regional
governments to commuter trains would change and a lot of the problems having to
do with lack of trust would just go away. And naturally, we must not forget
about legal mechanisms for ensuring that the governments perform the
obligations they take on. If a contract for a commuter train service is
entered, the regional government must pay for the transport order it
placed.

Nevertheless, it must be borne in mind that contracts are entered into
freely, with no coercion and the methodologies proposed by the regulator are
just a tool that can help the parties agree rational terms.

And new rolling stock for commuter trains is the kind of rational choice
we're talking about here. In any big city today there is a large group of
people choosing between sitting in their car in a traffic jam or taking a
commuter train. If commuter trains can give them comfort and higher speed they
will be willing to pay for it. Even today high speed express trains cost more
and there's a lot of demand for them, despite the fact that they are
essentially the same kind of trains as your standard commuter trains, the only
difference being that the cars are cleaner and they make fewer stops. Sure
every regional government should act based on the kind of situation they have
there locally, but our studies suggest that when it comes to choosing a mode of
transport, it's not the price but convenience that is the deciding factor
today.

At the same time, when people use commuter train services more it also helps
solve the problem of traffic congestion in big cities and if we remember how
much it costs to build a road, it turns out that buying new rolling stock is
the cheaper and more rational option here.

Furthermore, commuter train services have a significant impact on the
development of urban agglomerations as a whole. The advertisements for any new
housing developments today always open with information about when they're
going to have a metro station there. But an express commuter train that takes
you straight to the city center is essentially the same thing as the metro,
except that it travels on land rather than underground. Essentially, what we're
seeing is that availability of good transportation options is the chief element
in the development of major cities.

We're currently looking into proposals to shift to long-term transportation
orders. This would allow carriers to use leasing more liberally and that would
give them more options for upgrading their rolling stock. As for the wear and
tear of the commuter trains currently in operation, in my opinion, instead of
looking at the standard service life, we should be looking at the actual state
of the trains. In different parts of the country commuter trains are used at
different intensity: in some places a train may run a couple times a week,
spending the rest of the time in a heated depot, if that is the case why write
it off, even it may be old?

Our view is that in their search for additional funds, commuter train
companies should use more fare differentiation depending on the quality of
service and route, especially on routes where alternative modes of
transportation are available. But this is not about increasing the overall
level of prices. The recent bad example in Buryatia clearly shows that the
logic where you raise the fares to get more money can backfire. After they
raised the fares there the average fare for traveling by train within the
republic went above the prohibitive level of RUB 1,000 per 200 km and people
simply stopped using trains. By now they've lowered the fairs to RUB 382, or by
a factor of 2.7, the number of passengers has increased and total fares have
increased as well. Now they're launching new routes there.

This means that such tools as analysis of demand elasticity are not yet
being used enough and a lot of people still don't realize that when you lower
prices your total revenue may actually increase thanks to a spike in demand
that will result from lower prices. The new methodologies and the federal
policy on commuter trains offer enough flexibility for all parties involved,
but now we have to manage to make use of it.